Friday, September 25, 2009

By Wray Herbert

There are so many things you can purchase or accomplish for just pennies a day. You can get lots of interesting magazine subscriptions, or a good life insurance plan—no physical required. You can adopt a needy child in Africa, or save the Earth from global warming.

The “pennies a day” marketing scheme has been around a long time, and whoever came up with it showed extraordinary psychological insight. Indeed, science is only now beginning to demonstrate what these marketers sensed intuitively—that people are not entirely rational when it comes to processing numbers. What’s more, the way we think about scales and rates and ratios can make us into either cautious or indiscriminate consumers.

In a way this is obvious. “Pennies a day” is a meaningless ratio, because we’re not really reaching into our pockets each and every day for those copper coins. That’s what the marketers want you to visualize, but most of us are not truly fooled by the ruse. We know automatically--without doing any arithmetic at all—that we’re really talking about dollars a month and maybe hundreds of dollars over a year or years. It’s all a matter of knowing the meaningful scale.

But what if the manipulation of numbers is more subtle, or more complex? Are there marketing phrases and terms that do fool our imperfect minds? University of Michigan psychologist Katherine Burson and her co-workers believe so, and they’ve run a couple interesting experiments to simulate the kinds of offers we might well encounter in our daily lives. Here’s an example:

Imagine you’re in the market for a cell phone plan. After shopping around, you’ve narrowed your choices to two: Plan A costs $32 a month, and for that you’re guaranteed no more than 42 dropped calls out of 1000. Plan B only costs $27 a month, but the number of dropped calls is 65. In other words, you get what you pay for, and consumers make their choice based on what’s more important—money or service.

But what if the same offer was phrased this way? Plan A costs $364 a year, and drops 4.2 calls per 100. Plan B costs $324 and drops 6.5 calls per 100. It takes only the tiniest bit of arithmetic to see that nothing has changed. The offers are identical to what they were before, except that the scale has changed. But actually two scales have changed, and in different ways, so it’s not a no-brainer like “pennies a day.”

So how do consumers process these different offers? The psychologists gave these choices to a large group of volunteers, and the results were interesting. Consumers preferred Plan B when it was described as having a lower price per year, but they preferred Plan A when it was described as having fewer dropped calls per 1000. Notice that it’s the “per year” and “per 1000” that are important. Making the scale bigger also made the difference appear more exaggerated, so emotionally consumers feel like they’re getting much better service or a big savings in cost. Consumers actually changed their preferences with the larger scale—they became more discriminating—even though the real terms remained unchanged.

This is pretty remarkable—and unnerving. But there’s more. In a second experiment, the researchers offered a slightly different choice for movie rental plans. In this scenario, Plan A costs $10 a month for seven new movies per week. Plan B costs $12 a month for nine new movies a week. As before, either choice could make sense, depending on which meets your financial and movie-watching needs.Then they once again changed the terms: This time the prices stayed the same, but instead of a weekly allotment of movies, consumers now got a yearly allotment. That is, for $10 a month they got 364 movies per year, and for $12 a month they got 468. How did the movie aficionados process these offers? As reported in the current issue of the journal Psychological Science, dramatically more consumers chose plan B when it was expressed in movies per year. It's the emotional impact of that number--468. That's a lot of movies, and a lot more than the other plan gets you, and still for only $12 a month. When you come to think of it, that's really just pennies a day.